Libyan unrest could cause significant quantity of country's oil output to remain offline on a protracted basis.
The shortfall in production comes at a time when OPEC has not made no committments to raise production, precipitating an SPR release and IEA coordinated stock release.Spare capacity levels have not improved and stand at about 3.4 mb/d based on the IEA’s estimates. Production from the other OPEC members are arguably more stretched today with global unplanned outages exceeding 3 mb/d. Although non-OECD countries, including China, are building stock levels, OECD industry total oil stocks remain below the five-year average on an absolute and days forward basis, and refining throughput is forecast to swing seasonally up by 2.4 mb/d from May to August.

Barclays doubts from where the incremental production will come if supply and demand balances necessitate an increase in the call on OPEC crude And, can this crude arrive in a timely manner at sufficient volumes to meet the quality demanded?

Iran was still producing 3.7 mb/d in June 2011; today it is producing 2.8 mb/d with little real prospect to increase more by the end of the year. If OPEC does not acknowledge its willingness to respond with increased output, the market should not rule out the possibility that, amid a still-fragile economic environment, consumer countries might use the market mitigating measures they have used in the past to avoid severe economic harm, Barclays added.
Source: Barclays